Real Estate Mogul Financing

I’m having a hard time understanding how real estate moguls that started with nothing now own empires. I understand that they invested at of time and hard work and obviously their capital, time, and work is all leveraged now, but the aspect that I can’t grasp is how they obtained financing for their ventures in order to grow their empire in such a short amount or time (for example: David Lichtenstein started with a duplex on his credit card 18 years ago and now owns $3 billion worth of properties at age 43).

I guess what I’m trying to understand is how someone can go from $0 in holdings to $3 billion in holdings within 18 years like David Lichtenstein. Strictly speaking in terms of financing techniques or whatever else, how is this possible?

In my opinion what separates these guys from the small investor is creativity. I don’t mean creative financing or anything but rather a creative niche or two. David buys properties in places most people wouldn’t think to spend a dime in.

Trumps develops or will refurbish a building most people wouldn’t touch (Commodore Hotel) and then adds an entirely new tier of luxury. I believe it’s seeing opportunity that is overlooked. Often times this comes with a lot of criticism of other investors saying your crazy. The best investors don’t travel the beaten path to go to work. That’s not always the case with billionaires but the ones who got that way relatively quick it is.

I see. However, how do these guys obtain enough capital and financing to growth at that pace?

When you do well on one project, that is negotiating leverage to obtain financing on the next deal. You shouldn’t expect to jump through the same hoops successful deal after successful deal. Also, your not going to become a billionaire in a single life time buying duplex after duplex. Taking baby steps your whole career will get you about as far as a baby could walk. One of Trumps first deals (with his father) was turning a 1200 unit apartment complex that was a third vacant into 100% occupancy within a year, making $6M.

It doesn’t take too long to get to a billion when your doing $100 million dollar deals. The only way to get to those numbers is working with experts. When I got started investing it was difficult to convince even a hard money lender to finance my deals. I assured them that they weren’t just counting on me (with no experience) to complete the project but rather they were betting on a realtor with 25+ years of experience, qualified contractors, an appraiser, an inspector, etc. etc.

Lenders have trillions of dollars they desperately want to lend. It’s just a matter of making them feel comfortable enough to give you that money.

I do see what you’re saying. However, Donald did have access to resources that beginners could only dream of.

Are you saying that these guys would pull out what little equity they had in order to acquire property even if it left them with 95-100% LTV financing?

This is a great discussion string. I am trying to go from small time to big time. Currently, I have done a bunch of rehabs, some land and small commercial development flips and have 16 condo units under construction and a 6 unit apartment building.

I just met with a private capital placement group about this very question. They like what me, my business partner and investors are doing and want to fund us on a couple of the smaller projects. The partner of the firm said that if we can prove continued success on a project that they find the financing for, they have hundreds of millions available to fund our projects as we grow.

Having met with a bunch of banks, commercial lenders, etc…it is not what I was expecting to hear. With all of the other banks and lenders, it was a cart before the horse situation.

We can not fund a $3M deal…since you have not done one yet.

It is refreshing to see that some companies will fund deals base on past…more modest successes.


Is the 3M deal you are talking about an acquisition or construction loan?

Well, now I can get funding for them. The current deal I will be working on would be for acquisition and construction.

I see. Lenders look at the past performance of the property when qualifying for a loan?